Options for paying for care home fees

The main option available to provide for care costs is the Immediate Needs Annuity (INA), a special type of annuity tailored for care home residents and currently only offered by Friends Life and Partnership.

In exchange for a lump sum, income from an INA is paid directly to the care home provider, uniquely, tax free. An £85,000 lump sum could secure an annual income of £13,000-£21,000, according to Partnership, with the level very much dependent on the purchaser’s impairment and gender.

However, with care fees averaging about £25,000a year, the INA income would need to be topped up by other sources, such as the state pension.

The benefit of INAs is that they are individually underwritten so that the income can be higher than that from a standard annuity. If you live longer than expected, your annuity will continue to cover costs. The main risk is that you won’t get a good return on your capital if you die early but capital protection can be added, at a cost.

Saving privately for care is another option. But the biggest risk is that savings or investments will run out, forcing a resident to move into a cheaper home.

Traditional equity release plans are not a solution for care home fees as, once the borrowers move into care, they need to sell their properties and repay their debt. Equity release is more appropriate for funding care in the home.

For those who don’t have upfront cash, there are plans for a charge that can be taken against a family home in lieu of fee payment. But providers will charge interest on this, with the average rate about 6 per cent.

Local authorities also offer this deferred payment facility but, unlike providers, will not charge interest.

To find a specialist adviser, see www.societyoflaterlifeadvisers.co.uk

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